Chapter 2 Flashcards
Account Analysis
A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.
Direct Cost
A cost that can be easily and conveniently traced to a specified cost object. Ex. Direct material and direct labor.
Indirect Costs
A cost that cannot be easily and conveniently traced to a specified cost object. Ex. Manufacturing overhead.
Common Costs
A cost that is incurred to support a number of cost objects but that cannot be traced to them individually. Ex. CEO Salary.
Direct Materials
Materials that become an integral part of a finished product and whose costs can be conveniently traced to it. Ex. Car Parts like installing a radio or windshield.
Direct Labor
Factory labor costs that can be easily traced to individual units of a product. Also called touch labor. Example Wages paid to assembly workers.
Manufacturing Overhead
All manufacturing costs that cannot be easily traced directly to specific units produced. Examples are indirect materials and indirect labor.
Indirect Materials
Materials used to support the production process like lubricants and cleaning supplies used in the assembly plant.
Indirect Labor
The costs of wages paid to employees who are not directly involved in production work. Examples are maintenance workers, janitors, and security guards.
Non-manufacturing costs
Selling Costs- costs necessary to secure the order and deliver the product. Selling costs can be either direct or indirect costs.
Administrative Costs- All executive, organizational, and clerical costs. Can be either direct or indirect costs.
Period Costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued. All selling and administrative costs are period costs. Examples include sales commissions, advertising, executive salaries, PR, rental costs of admin offices.
Period Cost= Selling Expenses + Administrative Expenses
Cost Object
Is anything for which cost data are desired– including products, customers, jobs, and organizational subunits.
Raw Materials
The materials that go into the final product.
Selling Costs
Include all costs that are incurred to secure customer orders and get the finished product to the customer. Examples: advertising, shipping, sales travel, commissions, sales salaries, and costs of finished goods warehouses.
Administrative Costs
Include all costs associated with the general management of an organization rather than with manufacturing or selling. Examples include executive compensation, general accounting, secretarial, public relations.
